Since the $14,000 reduced your mortgage balance it is the same as it being paid to you and then you paying down the mortgage. So, if it would be taxable had you received it in cash, then it is income to you and should be reported a such. However, you mentioned that only the proceeds that apply to the temporary easement is taxable, so if you accounted for that amount when you reported the $26,000, then you don't need to make an additional entry on your tax return.
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